IC Markets Europe Fundamental Forecast | 21 October 2025

What happened in the Asia session?
The session was marked by optimism over US-China trade relations and key political shifts in Japan, propelling regional equities higher and supporting risk-intensive assets. Currencies generally reflected subdued volatility, while commodities like gold cooled off after recent highs. Equity indices in Japan, South Korea, China, and Hong Kong were among the most measurably impacted as traders responded to the day’s headlines and data releases.

What does it mean for the Europe & US sessions?
Easing U.S.-China trade tensions with diplomatic progress toward face-to-face negotiations, strong Asian market performance led by optimism over reduced geopolitical risks, robust corporate earnings expectations with major companies reporting throughout the week, and near-certainty of Federal Reserve rate cuts supporting risk assets.

No major news event

The US dollar faces a confluence of negative pressures trading near 98.5 on the DXY index after declining over 12% year-to-date. The 20-day government shutdown has created a critical data vacuum ahead of the Fed’s widely expected October 29 rate cut, while escalating US-China trade tensions and regional banking sector stress compound investor concerns. Most significantly, the dollar appears to be losing its traditional safe-haven status amid fiscal sustainability worries and threats to Federal Reserve independence.

The Federal Open Market Committee (FOMC) voted, by majority, to lower the federal funds rate target range by 25 basis points to 4.00%–4.25% at its September 16–17, 2025, meeting, marking the first policy rate adjustment since December 2024 after five consecutive holds.
The Committee maintained its long-term objective of achieving maximum employment and 2% inflation, acknowledging recent labor market softening and continued tariff-driven price pressures.
Policymakers expressed elevated concern about downside risks to growth, citing a stalling labor market, modest job creation, and an unemployment rate drifting up toward 4.4%. At the same time, inflation remains above target, with CPI at 3.2% and core inflation at 3.1% as of August 2025; higher energy and food prices, largely attributable to tariffs, continue to weigh on headline measures.
Although economic activity expanded at a moderate pace in the third quarter, the growth outlook has weakened. Q3 GDP growth is estimated near 1.0% (annualized), with full-year 2025 GDP growth guidance revised to 1.2%, reflecting slowing household consumption and tighter financial conditions.
In the updated Summary of Economic Projections, the unemployment rate is projected to average 4.5% for the year, with headline PCE inflation revised up slightly to 3.1% for 2025. The Committee anticipates core PCE inflation to remain stubborn, requiring sustained vigilance and a flexible approach to risk management.
The Committee reiterated its data-dependent approach and openness to further adjustments should employment or inflation deviate meaningfully from current forecasts. Several members dissented, either advocating a larger 50-basis-point cut or preferring no adjustment at this meeting, revealing heightened divergence within the Committee.
Balance sheet reduction continues at a measured pace. The monthly Treasury redemption cap remains at $5B and the agency MBS cap at $35B, as the Board aims to support orderly market conditions in the face of evolving global and domestic uncertainty
The next meeting is scheduled for 28 to 29 October 2025.

Next 24 Hours Bias
Medium Bearish

No major news event

Gold consolidated just below record highs as profit-taking tempered the precious metal’s historic rally following Monday’s all-time high of $4,381.21 per ounce. The pullback represents a natural pause after gold’s extraordinary 58-62% year-to-date surge, with the metal remaining firmly supported above $4,300. Record ETF inflows and continued central bank buying provide structural support, while Friday’s delayed September CPI data will be crucial in confirming the Fed’s rate cut trajectory

Next 24 Hours Bias
Strong Bullish

ECB President Lagarde speaks (11:00 am GMT)

The euro is trading relatively stable near 1.1640 against the dollar as markets digest mixed economic signals. ECB President Lagarde is speaking in Oslo today while continuing to advocate for a stronger global role for the euro amid concerns about US dollar erosion. Eurozone inflation at 2.2% remains slightly above the ECB’s target, while economic growth continues to disappoint at just 0.1% in Q2. The ECB has paused its rate-cutting cycle with rates on hold since June 2025, and further cuts appear increasingly unlikely.

The Governing Council kept the three key ECB interest rates unchanged at its meeting on September 11, 2025. The main refinancing rate remains at 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%. These levels have been maintained after the cuts earlier in 2025, reflecting the Council’s confidence that the current stance is consistent with the price stability mandate.
Evidence that inflation is running close to the ECB’s medium-term target of 2% supported the decision to hold rates steady. Domestic price pressures are easing as wage growth continues to moderate, and financing conditions remain accommodative. Policymakers reaffirmed a data-dependent, meeting-by-meeting approach to further policy moves, with no pre-commitment to a predetermined path amid ongoing global and domestic risks.
Eurosystem staff projections foresee headline inflation averaging 2.0% for 2025, 1.8% for 2026, and 2.0% in 2027. The 2025 and 2026 forecasts reflect a downward revision, primarily on lower energy costs and exchange rate effects, even as food inflation remains persistent. Core inflation (excluding energy and food) is expected at 2.0% for 2026 and 2027, with only minor changes since prior rounds.
Real GDP growth in the euro area is projected at 1.1% for 2025, 1.1% for 2026, and 1.4% for 2027. A robust first quarter—partly due to firms accelerating exports ahead of anticipated tariff hikes—cushioned a weaker outlook for the remainder of 2025. While business investment continues to face uncertainty from ongoing global trade disputes, especially with the US, government investment and infrastructure spending are expected to provide some support to the outlook.
Rising real incomes and continued strength in the labor market boost household spending. Despite some fading tailwind from previous rate cuts, financing conditions remain broadly favorable and are expected to underpin the resilience of private consumption and investment against outside shocks. Moderating wage growth and profit margin adjustments are helping to absorb residual cost pressures.
Rising real incomes and continued strength in the labor market boost household spending. Despite some fading tailwind from previous rate cuts, financing conditions remain broadly favorable and are expected to underpin the resilience of private consumption and investment against outside shocks. Moderating wage growth and profit margin adjustments are helping to absorb residual cost pressures.
All future interest rate decisions will continue to be guided by the integrated assessment of economic and financial data, the inflation outlook, and underlying inflation dynamics, and the effectiveness of monetary policy transmission—without any pre-commitment to a specific future rate path.
The ECB’s Asset Purchase Program (APP) and Pandemic Emergency Purchase Program (PEPP) portfolios are declining predictably, as maturities have ceased to be reinvested. Balance-sheet normalization continues in line with the ECB’s previously communicated schedule.
The next meeting is on 29 to 30 October 2025

Next 24 Hours Bias
Medium Bullish

No major news event

The Swiss Franc’s strength reflects a confluence of factors: persistent safe-haven demand driven by the US government shutdown, global trade tensions, and financial system concerns; divergent monetary policy trajectories with the SNB maintaining rates at 0% while the Fed signals further cuts; and the franc’s structural advantages as a safe-haven asset. However, this strength comes despite significant domestic economic challenges, with Switzerland facing below-average growth forecasts of 1.3% in 2025 and 0.9% in 2026 due to US tariff impacts on its export-oriented economy.

The SNB maintained its key policy rate at 0% during its meeting on 25 September 2025, pausing a sequence of six consecutive rate cuts as inflation stabilized and the Swiss franc remained firm.
Recent data showed a modest rebound in inflation, with Swiss consumer prices rising 0.2% year-on-year in August after staying above zero for three consecutive months; this helped alleviate fears of deflation that were mounting earlier in the year.
The conditional inflation forecast remains broadly unchanged from June: headline inflation is expected to average 0.2% in 2025, 0.5% in 2026, and 0.7% in 2027. The risk of a negative rate move has diminished for now, but the SNB retains flexibility should inflationary pressures weaken again.
The global economic outlook has deteriorated further, weighed down by heightened trade tensions—especially with the U.S.—and ongoing uncertainty in key Swiss export markets.
Swiss GDP growth moderated in Q2 after a strong Q1 boosted by front-loaded U.S. exports. The SNB expects growth to slow and remain subdued, with forecasted GDP expansion between 1% and 1.5% in both 2025 and 2026.
Labor market sentiment in the Swiss industrial sector has softened on concerns over export competitiveness and potential adjustments to production, but the overall growth outlook stays broadly unchanged
The SNB reiterated its readiness to respond as needed if deflation risks re-emerge, emphasizing its commitment to medium-term price stability and a robust, transparent communication policy, with the introduction of more detailed monetary policy minutes beginning in October.
The next meeting is on 11 December 2025.

Next 24 Hours Bias
Medium Bullish

No major news event

The Swiss franc remains well-supported on trading near 0.7927 against the US dollar as multiple factors continue to underpin its safe-haven appeal. While easing US-China trade tensions and hopes for a US government shutdown resolution are providing modest support to the dollar, the franc benefits from elevated global uncertainty, concerns over US regional bank stability, and Switzerland’s reputation for fiscal stability.

The Bank of England’s Monetary Policy Committee (MPC) voted on 18 September 2025 by a majority (expected split likely 7–2 or 6–3) to hold the Bank Rate steady at 4.00%, following the August rate cut. Most members cited persistent inflation and mixed indicators on growth and employment, while a minority favored further easing due to the cooling labor market and subdued GDP growth.
The Committee decided to decrease the pace of quantitative tightening, planning to reduce the stock of UK government bond purchases by £67.5 billion over the next 12 months, instead of the prior £100 billion pace, with the gilt balance now standing at nearly £558 billion. This reflects increased volatility in bond markets and a shift to a more gradual approach.
Headline inflation rose unexpectedly to 3.8% in July and is projected at 4% for September, above the Bank’s 2% target. Price pressures are driven by regulated energy costs and ongoing food price increases. While previous disinflation has been substantial, core inflation remains elevated and sticky.
The MPC expects headline inflation to remain above target through Q4, with a resumption of the downward trend projected for early 2026 as energy and regulated price pressures abate. The Committee remains watchful for signs of persistent inflation despite previous policy tightening.
UK GDP growth is stagnant, with business and consumer activity subdued. Recent labor market data show rising unemployment rates (now at 4.7%) and stabilizing wage growth (holding near 5%), indicating slack but continued wage price pressure. The Committee remains cautious amid lackluster demand and soft survey sentiment.
Pay growth and employment indicators have moderated further, alongside confirmation from business surveys that pay settlements are slowing. The Committee expects wage growth to decelerate significantly through Q4 and the rest of 2025.
Global uncertainty persists due to volatile energy prices, supply chain disruptions linked to Middle East conflicts, and renewed trade tensions. The MPC remains vigilant in tracking transmission of external cost/wage shocks to UK inflation.
Risks to inflation are considered two-sided. While subdued domestic growth and softening labor activity suggest scope for easing, persistent inflation requires caution. The MPC anticipates a slow, gradual reduction path in rates, continuing its data-dependent approach with careful adjustment as warranted by economic developments.
The Committee’s bias remains toward maintaining a restrictive monetary policy stance until firmer evidence emerges that inflation will return sustainably to the 2% target. All future decisions will remain highly data dependent, with a strong emphasis on evolving demand, inflation expectations, costs, and labor market conditions.
The next meeting is on 6 November 2025.

Next 24 Hours Bias
Weak Bullish

CPI m/m (12:30 pm GMT)

Median CPI y/y (12:30 pm GMT)

Trimmed CPI y/y (12:30 pm GMT)

Common CPI y/y (12:30 pm GMT)

The Canadian dollar faced multiple headwinds including declining oil prices to five-month lows, anticipation of higher inflation data, ongoing US-China trade uncertainty, and the protracted US government shutdown. While the Bank of Canada’s dovish stance and weak business sentiment surveys suggested further rate cuts ahead, the critical September CPI release would determine whether the central bank proceeds with easing at its October 29 meeting.

The Council cited continued U.S. tariff volatility and slow progress on trade negotiations as major contributors to ongoing uncertainty. While headline tariffs have not escalated further, the unpredictability of U.S. policy remains a significant risk for Canadian exports and business confidence.
Uncertainty about U.S. trade policy and recurring tariff threats continued to weigh on growth prospects. The Bank flagged downside risks to the export sector, with survey data indicating ongoing hesitancy among manufacturers and exporters.
After modest growth in Q1, Canada’s economy slipped into contraction, with GDP shrinking by 0.8% in Q2 and forecast to decrease again by 0.8% in Q3. Economic weakness has been most pronounced in manufacturing and goods-producing sectors affected by trade frictions and softer U.S. demand.
Early estimates show that growth stabilized in September but remained well below the Bank’s 2% forecast for Q4. Manufacturing output has improved slightly—supported by a modest rebound in petroleum and mining activity—while consumer spending and retail sales were largely flat.
Consumer spending remained subdued as households continued to limit discretionary purchases amid uncertainty and a slower job market. Housing activity stayed weak, despite earlier government efforts to boost affordability and modest gains in some real estate segments.
Headline CPI inflation edged up to 1.9% in August, undershooting economist expectations but still showing emerging pressures from shelter and imported goods costs. Core inflation metrics were mixed, though price growth remains just below the Bank’s 2% target.
The Governing Council reaffirmed its cautious approach, emphasizing that while further rate cuts are possible, the pace will hinge on the path of U.S. tariffs, domestic inflation dynamics, and signs of a sustainable recovery. The Bank remains vigilant against the risk of inflation falling below target in the face of economic slack.
The next meeting is on 29 October 2025.

Next 24 Hours Bias
Medium Bearish

API crude oil stock (8:30 pm GMT)

Oil markets face significant headwinds from multiple directions. Prices have declined to five-month lows, with WTI near $57 and Brent around $61 per barrel, as an unprecedented supply glut emerges. The IEA’s projection of a 4 million barrel per day surplus by 2026 driven by OPEC+ production increases, record crude storage at sea, and rising U.S. inventories has fundamentally shifted market dynamics. Demand concerns stemming from U.S.-

Next 24 Hours Bias
Strong Bearish